Virginia Postrel on "Macroegonomics"

Research published in journals like the American Economic Review, dating back to a 2000 article
by Margaret McConnell of the New York Fed and Gabriel Perez-Quiros of
the European Central Bank, tells a different story. This line of
research says that good Fed policy was necessary but not sufficient,
that the business cycle never disappeared, and that most of the Great
Moderation emerged not from deliberate government policy but from
changes in business practices that occurred for competitive reasons
having nothing to do with macroeconomic goals.

In the Summer 2008 issue of the Journal of Economic Perspectives, economists Steven J. Davis and James A. Kahn review this research
and further dissect the evidence from both aggregate statistics and
individual measurements of things like the lead times for ordering
production materials and fluctuations in household spending. What they
find fits the broad outlines of Romer’s story—but not its
congratulatory conclusion. The Great Moderation looks a lot like the
staid 1950s, with better inventory management and more-flexible
employment contracts.

...When Davis and Kahn broke down the GDP data by sector, they found
that from 1970 on, the size of fluctuations in services didn’t change
much. Nondurable goods became only modestly less volatile than they had
been before 1980. The dramatic smoothing of the jagged line that
appears when you graph all of GDP together mirrors what happened in
only a single sector: durable goods. So the Great Moderation wasn’t a
general phenomenon. It was something that happened in that one
particular part of manufacturing. (The economy’s shift to more services
and less durable-goods production did calm things down, but not enough
to account for the big change.)